Tanzania - Kidatu Hydroelectric Project-Second Stage : Loan 1306 - Project Agreement - Conformed

rFFICL RSPECIAL ACTION CREDIT NUMBER 55 TA Project Agreement (Kidatu Hydroelectric Project - Second Stage) between INTERNATIONAL DEVELOPMENT ASSOCIATION as ADMINISTRATOR of the SPECIAL ACTION ACCOUNT established with funds contributed by the MEMBER STATES of the EUROPEAN ECONOMIC COMMUNITY and TANZANIA ELECTRIC SUPPLY COMPANY LIMITED Dated , 1980 PROJECT AGREEMENT AGREEMENT, dated v , 1980, between INTERNATIONAL nEVELOPMENT ASSOCIATION as ADMINISTRATOR of the Special Action Account established with funds contributed by the MEMBER STATES of the EUROPEAN ECONOMIC COMMUNITY (hereinafter called the Administrator) and TANZANIA ELECTRIC SUPPLY COMPANY LIMITED, a company organized and existing under the Laws of Tanzania (hereinafter called TANESCO). WHEREAS by the Special Action Credit Agreement of even date herewith (hereinafter called the Special Action Credit Agreement) between the United Republic of Tanzania (hereinafter called the Borrower) and the Administrator, the Administrator has agreed to make to the Borrower a Special Action Credit (hereinafter called the Special Action Credit) on the terms and conditions set forth in the Special Action Credit Agreement, but only on condition that TANESCO agree to undertake such obligations towards the Adminis- trator as are hereinafter set forth; and WHEREAS by a subsidiary loan agreement to be entered into between the Borrower and TANESCO, the proceeds of the Special Action Credit will be made available to TANESCO on the terms and conditions therein set forth; and WHEREAS TANESCO, in consideration of the Administrator's entering into the Special Action Credit Agreement with the Bor- rower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Preamble to this Agreement, in the Special Action Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth and the term "subsidiary" means any company of which a majority of the outstanding voting stock shall be owned, or which shall be effectively controlled, by TANESCO or by any one or more subsidiaries of TANESCO or by TANESCO or one or more of its subsidiaries. -2- ARTICLE II Execution of the Project Section 2.01. TANESCO shall carry out the Project described in Schedule 2 to the Special Action Credit Agreement with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices. Section 2.02. In order to assist TANESCO in the execution of the Project, TANESCO shall continue to employ: (a) consultants to assist TANESCO in carrying out Parts A, B and C of the Project; (b) a construction supervision expert to work full-time in TANESCO's construction supervision unit at the site of the dam included in Part B of the Project; and a project management expert to assist the head of TANESCO's Planning Division; (c) an advisor on contractors' claims; and (d) a panel of experts to be entrusted with the critical review of the detailed engineering design of, and the progress of construction of, the facilities included in Parts A, B and C of the Project, as such review shall from time to time be required by the Borrower, the Administrator or TANESCO. The qualifications, experience and terms and conditions of the consultants and experts referred to above, shall be satisfactory to the Administrator. Section 2.03. Except as the Administrator shall otherwise agree, procurement-of the goods and civil works required for the Project and to be financed out of the proceeds of the Special Action Credit shall be governed by the provisions of Schedule 3 to the Special Action Credit Agreement. Section 2.04. (a) TANESCO undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit and the Special Action Credit relent to it by the Borrower against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by TANESCO to replace or repair such goods. -3- (b) Except as the Association and the Administrator may otherwise agree, TANESCO shall cause all goods and services financed out of the proceeds of the Credit and the Special Action Credit relent to it by the Borrower to be used exclusively for the Project. Section 2.05. (a) TANESCO shall furnish to the Administrator, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Administrator shall reasonably request. (b) TANESCO: (i) shall maintain records and procedures adequate to record and monitor the progress of the Project (including its cost and, where appropriate, the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Special Action Credit, and to disclose their use in the Project; (ii) shall enable the Administrator's accredited representatives to visit the facilities and construc- tion sites included in the Project and to examine the goods financed out of the proceeds of the Special Action Credit and any relevant records and documents; and (iii) shall furnish to the Administrator at regular intervals all such information as the Administrator shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Special Action Credit and the goods and services financed out of such proceeds. (c) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between TANESCO, and the Administrator, TANESCO shall prepare and furnish to the Administrator a report, of such scope and in such detail as the Administrator shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by TANESCO, and the Administrator of their respective obligations under the Project Agreement and the accomplishment of the purposes of the Special Action Credit. (d) TANESCO shall enable the Administrator's accredited representatives to examine all plants, installations, sites, works, buildings, property and equipment of TANESCO and any relevant records and documents. Section 2.06. TANESCO shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Administrator shall otherwise agree, TANESCO shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provi- sion thereof. Section 2.07. (a) TANESCO shall at the request of the Admini- strator, exchange views with the Administrator with regard to the progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement and other matters relating to the purposes of the Special Action Credit. (b) TANESCO shall promptly inform the Administrator of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Special Action Credit, or the performance by TANESCO of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of TANESCO Section 3.01. (a) TANESCO shall at all times manage its affairs, plan the development of its properties and facilities, and maintain its financial position, all in accordance with sound engineering, public utility, financial and business principles and practices and under the supervision of experienced and competent management; and shall cause its plant, equipment, properties and facilities to be maintained and all necessary renewals and repairs thereto to be made, all in accordance with sound engineering and public utility practices. (b) The Borrower and the Administrator shall review from time to time the qualifications and experience that will be regarded as appropriate by the Borrower for appointments to the position of general manager of TANESCO. (c) TANESCO shall continue to appoint, retain or promote sufficient qualified and experienced staff to enable TANESCO to conduct its operations efficiently. Section 3.02. TANESCO shall take out and maintain with the National Insurance Corporation of Tanzania or make other - 5 - provisions satisfactory to the Administrator for insurance against such risks and in such amounts as shall be consistent with sound public utility practice. Section 3.03. TANESCO shall not, without the consent of the Bank, sell or otherwise dispose of any of its property or assets which shall be required for the efficient carrying on of its business and undertakings, including the carrying out of the Project. Section 3.04. TANESCO shall at all times maintain its cor- porate existence and right to carry on its operations, and take all steps necessary to acquire, maintain and renew all rights, powers, privileges, licenses, concessions and franchises which are necessary or useful in the conduct of its business. Section 3.05. TANESCO may establish a subsidiary or subsid- iaries only after prior consultation with the Administrator. ARTICLE IV Financial Covenants Section 4.01. TANESCO shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. TANESCO shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Administrator; (ii) furnish to the Administrator as soon as available, but in any case not later than five months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Administrator shall have reasonably requested; and (iii) furnish to the Administrator such other information concerning such accounts and financial state- ments and the audit thereof as the Administrator shall from time to time reasonably request. Section 4.03. Except as the Administrator shall otherwise agree, TANESCO and all its subsidiaries shall not incur any debt for purposes other than the Project unless the consolidated -6- net revenue of TANESCO and all its subsidiaries for the fiscal year immediately preceding the date of such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever period shows the greater consolidated net revenue, shall be at least 1.5 times the maximum consolidated debt service requirements for any-succeeding fiscal year on all the debt of TANESCO and all its subsidiaries including the debt to be incurred. For the purposes of this Section: (a) the term "debt" means all debt, including debt assumed or guaranteed by TANESCO or a subsidiary, except debt incurred in the ordinary course of business and maturing by its terms on demand or less than one year after its incurrence; (b) the term "incur" with reference to any debt includes any modification of the terms of payment of such debt. Debt shall be deemed to be incurred on the date on which a contract or lo.a agreement or guarantee agreement is executed; (c) the term "net revenue" means gross operating revenue of TANESCO, adjusted to take account of tariffs in effect at the time of the incurrence of debt even though they were not in effect during the entire fiscal year or twelve-month period to which such revenue relates, less all operating expenses, including adequate maintenance, taxes, if any, and administrative expenses, but before provision of depreciation and interest and other charges on debt; (d) the term "debt service requirements" means the aggregate amount of amortization (including sinking fund payments, if any), interest and other charges on debt; and (e) whenever it shall be necessary to value in the currency of the Borrower debt payable in another currency, such valuation shall be made on the basis of the rate of exchange at which such other currency is obtainable by TANESCO, at the time such valua- tion is made, for the purposes of servicing such debt, or, if such other currency is not obtainable, at the rate of exchange that will be reasonably determined by the Administrator in consultation with the Bank of Tanzania. Section 4.04. Except as the Administrator shall otherwise agree, TANESCO shall, every two years (as begun with the 1976 financial year) beginning from the 1980 financial year, revalue - 7 - its assets in accordance with sound and consistently maintained methods of valuation acceptable to the Administrator. Section 4.05. (A) Except as the Borrower and the Adminis- trator shall otherwise agree, TANESCO and all its subsidiaries shall take all necessary steps within their power to establish and maintain tariffs for electric power services and such other actions as shall be required to provide each fitucial year, consolidated revenues sufficient to produce an annual rate of return of not less than 7% on the value of the consolidated net fixed assets in operation. (b) For the purposes of this Section: (i) the annual rate of return shall be calculated by relating the consolidated net operating income for the year in question to the average of the value of the consolidated net fixed assets of TANESCO and all its subsidiaries in operation at the beginning and at the end of that year; (ii) the term "value of the consolidated net fixed assets in operation" shall mean the gross book value of such assets, less the amount of accumu- lated depreciation, as valued from time to time in accordance with sound and consistently maintained methods of valuation acceptable to the Adminis- trator and the provision of Section 4.04 of this Agreement; (iii) the term "consolidated net operating income" shall mean the difference between: (A) consolidated gross operating revenue; and (B) the consolidated operating, maintenance and administration expenses, taxes (if any), and depreciation computed in accordance with the rates specified in the license presently held by TANESCO but excluding interest and other charges on debt. Section 4.06. Except as the Administrator shall otherwise agree, TANESCO shall not declare a dividend on its Ordinary Shares in excess of 6-2/3% of their nominal value per annum. -8- ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Special Action Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Administrator and of TANESCO thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Special Action Credit Agree- ment shall terminate in accordance with its terms; or (ii) a date 20 years after the date of this Agreement. (b) If the Special Action Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Administrator shall promptly notify TANESCO of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding .any cancellation or suspension under the Special Action Credit Agreement. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address herein- after specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: -9- For the Administrator: Administrator of the Special Action Account (International Development Association) 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For TANESCO: Tanzania Electric Supply Company Limited P.O. Box 9024 Dar es Salaam Tanzania Cable address: TANESCO Dar es Salaam Section 6.02. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION as ADMINISTRATOR of the SPECIAL ACTION ACCOUNT established with funds contributed by the MEMBER STATES of the EUROPEAN ECONOMIC COMMUNITY By% i' FCJ\ 6AA Regional Vice President Eastern Africa INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have sigr)ed this Certifi- rate and affixed the Seal of the Association thereunto the -Lday of OL F R. FOR SECRETARY